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Environmental Kuznets Curve

How does economic growth and environmental protection relate? One theory that can provide insight is known as the Environmental Kuznets Curve, which is an extrapolation of the original Kuznets Curve that depicts the relationship between growth and inequality. We have talked about the potential problems we face in regard to global environmental concerns because of the developing v developed world concepts. This EKC theory can apply some insight into what we may be looking at.

Very simply, the theory asserts that economic growth will lead to increased pollution up to a peak, in which continued growth becomes associated with a decrease in pollution. There are three basic reasons for this idea. The first stage is known as ‘scale’ and is simply that as a nation begins to increase the scale of activities and production, then pollution will also increase. However, when or if the composition of the growth changes, then pollution can decrease or have a slower rate of growth as income increases. This should make sense to the US as a contributor to our more efficient energy usage given GDP growth is the fact that we are largely a service sector economy, and so we have changed our composition. A third stage is the technique of our growth, and really just refers to the improved ways we produce energy, given our concern to environmental health as a public good.

So now that we have a basic understanding of this, we can think about its implications. We can expect that the developing countries are moving up the curve and that they are going to pollute much more than the developed countries until they reach a point in time (who knows when that will be). However, recent evidence suggests that the EKC does not necessarily hold exactly true. For example, both China and India have taken considerable measures to improve their pollution even while in the initial growth stages of their economies. Logically the EKC makes sense, but as environmental issues become more pertinent and as we begin to economize technologies, it will be easier for developing countries to implement cleaner production. Additionally we should be aware that there is significant support in the reasoning that the EKC does not necessarily mean that there is irreversible damage by economic growth. This is important to be aware of due to the fact that there are those that claim we should limit economic growth because growth will inevitably lead to more environmental damage.

So the take away should be that economic growth does not need to mean more damage, and that it is again the role of innovation through profitable technologies that are going to be the most important tools we can use to inhibit increases in environmental pollution as the developing world makes significant growth over the coming decades. If you enjoyed this article, follow me on Twitter @devinxcombs